Monsolar IQ Ltd v Woden Park Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Fancourt,Fancourt J |
| Judgment Date | 05 June 2020 |
| Neutral Citation | [2020] EWHC 1407 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: PT-2019-000787 |
| Date | 05 June 2020 |
[2020] EWHC 1407 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY, TRUSTS & PROBATE LIST (CHD)
Rolls Building
7 Rolls Buildings
Fetter Lane
London, EC4A 1NL
Mr Justice Fancourt
Case No: PT-2019-000787
Toby Watkin and Luke Wilcox (instructed by Osborne Clarke LLP) for the Claimant
Caroline Shea QC (instructed by Geldards LLP) for the Defendant
Hearing dates: WRITTEN SUBMISSIONS ONLY
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HON. Mr Justice Fancourt
On 25 and 26 September 2019, each of the parties issued a Part 8 claim form raising for determination the same issue under the terms of a lease made on 8 July 2013 between the defendant as lessor and the claimant as lessee (“the Lease”). It has been agreed that the claimant's claim will be the lead claim. I shall refer to the claimant as “the Tenant” and the defendant as “the Landlord”. The issue is the true interpretation and effect of the indexation clause in the rent review provisions of the Lease.
The property demised by the Lease was 15 acres of bare agricultural land at Woden Park, Cwrt-Yr-Ala Road, Michaelson Le Pit in the Vale of Glamorgan (“the Land”). The Land was part of a larger holding of 38 acres previously acquired by the Landlord, the title to which was registered. The Land was demised for a term of 25 years and six months from 8 July 2013 in consideration of the rent reserved and for use only for:
“the installation, repair, replacement, renewal, alteration, upgrade, re-siting within the Site and operation of the Apparatus, the generation, distribution and supply of electricity and uses ancillary or preparatory thereto and for any other activities reasonably related to the operation and maintenance of a solar photovoltaic development”.
The registered particulars of the Lease record that no premium was paid for its grant.
The “Apparatus” was defined as a solar photovoltaic system, including all related equipment and structures and other equipment reasonably required for the permitted use, as may from time to time be installed by or on behalf of the Tenant or the Distribution Network Operator, to whose electricity distribution system the Apparatus would be connected.
The Lease does not impose an obligation on the lessee as such to install the Apparatus; it gives the lessee the right to do so and imposes various obligations as to the carrying out of the works if the tenant does so. The lessee is then obliged to keep the Apparatus in a safe state of repair and condition throughout the term. The Lease is assignable with the consent of the Landlord, not to be unreasonably withheld or delayed, and may be charged but not sub-let.
Rent is payable by the Tenant in accordance with the Sixth Schedule to the Lease. That Schedule defines “Rent” as “A x B, where ‘A’ equals the area of the Site measured in acres which is 15 acres and ‘B’ equals £1,000.00 ( £1,000.00 per acre)”. The rent is payable half yearly in arrears and is to be reviewed annually on each anniversary of the date of grant of the Lease (a “Review Date”). Paragraph 3 of the Sixth Schedule provides:
“The Rent payable under this Lease will be reviewed in accordance with this paragraph 3 on each of the Review Dates and such Rent payable from and including each such Review Date shall be the Revised Rent which shall be calculated as follows:
Revised Rent = Rent payable prior to the Review Date (disregarding any suspension of Rent) x Revised Index Figure
Base Index Figure”
“Base Index Figure” is defined as “the Index Figure published in respect of the month two months before the commencement of the Term”, i.e. the figure for May 2013. “Revised Index Figure” is defined as “the Index Figure published in respect of the month two months before the relevant Review Date”. Thus, the relevant figure for the first Review Date of 8 July 2014 would be that for May 2014. “Index Figure” is defined as “the figure published at the relevant time as the General Index”, and “General Index” as:
“the General Index of Retail Prices (RPI – all items) (or any identical index under a different title) officially published from time to time by the Office for National Statistics or any other government department ministry or other body upon which the duties in connection with such index may have been devolved”.
Paragraph 4 of the Sixth Schedule provides (so far as material) as follows:
“4.1 In the event of any change after the date hereof in the reference base used to compile the General Index, the figure taken to be shown in the General Index after such change shall be the figure which would have been shown in the General Index if the reference base current at the date hereof had been retained
4.2 If the General Index shall cease to be published then there shall be substituted as the relevant calculation in paragraph 3 a new arrangement for indexation (the “Revised Indexation”) whereby the figure to be calculated under paragraph 3 shall reflect increases in the cost of living on a similar basis to that set out in paragraph 3 …”
The Lease contains an option for the Tenant at any time during the term to break the term on six months' prior notice.
It is accepted by the Tenant that, read literally, the indexation clause operates as follows. On the first anniversary date, the rent is increased by the RPI increase over the first year of the term. On the second anniversary date, that Revised Rent is further increased by the aggregate RPI increase over the first and second years of the term. On the third anniversary date, that further Revised Rent is further increased by the aggregate RPI increase over the first, second and third years of the term. And so on during the 25 years and six months of the term, so that at the end of year 24 the Revised Rent currently payable would be further increased by the aggregate RPI increase over the first twenty-four years of the term and a year later it would be further increased by the aggregate RPI increase over the first twenty-five years of the term.
Assuming RPI increases of 5% in each of the first three years of the term, the rent of £15,000 would thereby increase to £15,750 at the end of year one; to £17,325 (i.e. £15,750 + 10%) at the end of year two; and to £19,923.75 (i.e. £17,325 + 15%) at the end of year three. Thus, increases in rent upon the sequential annual rent reviews are not merely compounded, in the sense that it is the current, previously increased rent that is further increased on each Review Date; the current rent is also increased once more by the same factor by which the rent was previously increased, not just by a new factor reflecting the subsequent increase in the RPI index.
Departing from the arithmetically simple example based on successive 5% annual RPI increases, the Tenant's evidence is that if an annual rate of increase equal to the average RPI increase over the 20 years before the date of grant of the Lease (2.855% p.a.) is applied according to the formula in the Lease on each Review Date during the term of the Lease, the rent payable by year 25 of the term will be just over £76,000,000, as compared with less than £30,000 if non-cumulative RPI increases at that same average rate are applied to the reserved rent of £15,000 p.a.
It is of course the case that the RPI index is capable of decreasing as well as increasing – this in fact happened, for a single year only, in 2009 – and that the rate of increase (or decrease) over time cannot accurately be predicted. The Landlord's evidence is that if annual RPI increases of 1% p.a. were assumed over the length of the term of years, the annual rent would increase to only £380,660 in year 25. Neither side disputes the other's arithmetic but the appropriate assumptions to make to examine the effect of the indexation clause are very much disputed.
The Tenant's case is that the indexation formula in paragraph 3 of the Sixth Schedule is a clear mistake and that it is clear that what the parties to the Lease meant was:
“Revised Rent = Rent payable prior to the Review Date in the first year of the tenancy (disregarding any suspension of Rent) x Revised Index Figure
Base Index Figure”.
It submits that if, objectively, it is clear that a mistake was made in the language of paragraph 3 and clear what the mistake was, the Lease can and should be read in its intended sense and not literally as written: see Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101.
The Landlord's case is that it is not obvious that a mistake was made in the language or syntax of the Sixth Schedule and that the outcome of the application of its provisions (which cannot be predicted) is irrelevant to that assessment. Alternatively, if the predicted outcome is relevant, that the indexation formula, though potentially operating adversely to the Tenant's interests, does not necessarily produce such an absurd result that the objective observer would conclude that it must be mistaken in its terms.
In support of their cases, each party relied on the evidence of a director: Mr Feakins, in the case of the Landlord, and Ms Meyer in the case of the Tenant. Ms Meyer made a witness statement in support of the Tenant's claim form and Mr Feakins made a witness statement in support of the Landlord's claim form. Each then responded, by her and his second witness statement respectively, to the evidence of the other.
There is a dispute about the admissibility of evidence on each side. The Tenant complains that a significant part of the contents of Mr Feakins' statements consists of evidence of his subjective intention when the Lease...
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